SANTOS, Anjanette B. 4AAC BDO Unibank, Inc.

(BDO) Overview of the Business The product of a merger heralded as unprecedented in size and scale in the Philippine banking industry, BDO Unibank, Inc. (BDO) today represents a firm consolidation of distinct strengths and advantages built over the years by the entities behind its history. BDO is an institution that honors its past, continues to improve on its present, and moves towards the future with confidence and strength. BDO is a full-service universal bank in the Philippines. It has the ability to provide a complete array of industry-leading products and services including Lending (corporate, middle market, SME, and consumer), Deposit-taking, Foreign Exchange, Brokering, Trust and Investments, Credit Cards, Corporate Cash Management and Remittances. Through its subsidiaries, the Bank offers Leasing and Financing, Investment Banking, Private Banking, Bancassurance, Insurance, Brokerage and Stock Brokerage services. BDOs institutional strengths and value-added products and services hold the key to its successful business relationships with customers. On the front line, its branches remain at the forefront of setting high standards as a sales and service-oriented, customer-focused force. BDO has one of the largest distribution networks, with more than 760 operating branches and over 1,900 ATMs nationwide. Through selective acquisitions and organic growth, BDO has positioned itself for increased balance sheet strength and continuing expansion into new markets. As of 31 December 2012, BDO is the countrys largest bank in terms of total resources, capital, customer loans, total deposits and assets under management. BDO is a member of the SM Group, one of the countrys largest and most successful conglomerates with businesses spanning between retail, mall operations, property development (residential, commercial, resorts/hotel) and financial services. Segment Reporting BDO Unibank Groups main operating businesses are organized and managed separately according to the nature of services provided and the different markets served, with each segment representing a strategic business unit. These are also the basis of BDO Unibank Group in reporting to its chief operating decision-maker for its strategic decision-making activities. Management currently identifies BDO Unibank Groups three service lines as primary operating segments. In addition, minor operating segments, for which quantitative thresholds have not been met, as described in PFRS 8 are combined below as Others. (a) Commercial banking handles the entire lending (corporate and consumer), trade financing and cash management services for corporate and retail customers;

(b) Investment banking provides services to corporate clients outside the traditional loan and deposit products. These services include loan syndications, underwriting and placing of debt and equity securities, and financial advisory services; (c) Private banking provides traditional and non-traditional investment and structured products to high net worth individuals and institutional accounts; and, (d) Others includes asset management, insurance brokerage, realty management, leasing, financing, remittance, accounting service, credit card service and computer service, none of which individually constitutes a separate reportable segment. These segments are the basis on which BDO Unibank Group reports its segment information. Transactions between the segments are on normal commercial terms and conditions. Inter-segment transactions are eliminated in consolidation. Funds are ordinarily allocated between segments, resulting in funding cost transfers disclosed in operating income. Interest charged for these funds is based on BDO Unibank Groups cost of capital. There are no other material items of income or expense between the segments. Segment assets and liabilities comprise operating assets and liabilities including items such as taxation and borrowings. Segment revenues and expenses that are directly attributable to primary operating segment and the relevant portions of BDO Unibank Groups revenues and expenses that can be allocated to that operating segment are accordingly reflected as revenues and expenses of that operating segment. Revenue sharing agreements are used to allocate external customer revenues to a segment on a reasonable basis.

December 31, 2012, 2011 and 2010 (Amounts in Millions of Philippine Pesos, Except Per Share Date as Indicated)

Opinion about the Profitability and Revenue Growth of BDOs Operating Segments Referring to the financial information about the primary operating segments given on the previous page, there has been no any substantial change in the profitability of each segment for the past three years, except commercial banking. Knowing that commercial banking has been the traditional loan service offered by banks, it is not surprising to see that it is the major incomeearning segment of BDO, that is why it is normally anticipated that it will generate the highest profit, given as well that it has the largest amount of resources. Analysing net profits shown in the comparative statements using horizontal analysis and by considering 2010 as the base year, in 2011 there was an increase of 6.54% while in 2012, it raised much by 52.84%. Contrariwise, net profits of private banking segment for the same comparative years had declined. This also is expected since services offered by the segment are limited only to individuals and institutional accounts having high net worth. Such decline, however, cannot be pointed out as the primary reason for the increase in net profit of commercial banking segment since the changes in amounts do not correspond. Factors like changes in economy and cost of capital must be considered first, if there are any, in order to exactly determine the cause of change. On the other hand, investment banking segment shows a steady increase in proportion of revenue (interest income and other operating income) and profit, though in much smaller amounts as compared to commercial banking. Comparing the amount of changes in net profits of investment banking and private banking segments, it can be observed that the changes are in close proximity; however, it cannot be concluded that the increase of one is the cause of the decline of the other because of the necessity to take into account of the important events, circumstances and conditions happened during those years. Lastly, the minor operating segments combined as Others in the comparative statements show a substantial change in net profit during 2011. Using the same analysis, from P341 in 2010, it increased by 266.86% in the following year, and by 292.96% in 2012. This significant increase, however, is attributable only to other operating revenue and not to primary revenue of BDO which is interest income. It clearly shows in the statement the steady decline in interest income contrary to material improvement in other operating income. Over-all, the profitability and revenue growth of the operating segments of BDO has gone better since 2010.

Far Eastern University, Inc. Overview of the Business The Far Eastern University, Incorporated (the University or FEU) is a domestic educational institution founded in June 1928 and was registered and incorporated with the Securities and Exchange Commission (SEC) on October 27, 1933. On October 27, 1983, the University extended its corporate life for another 50 years. The University became a listed corporation in the Philippine Stock Exchange on July 11, 1986. The University is a private, non-sectarian institution of learning comprising the following different institutes that offer specific courses, namely, Institute of Arts and Sciences; Institute of Accounts, Business and Finance; Institute of Education; Institute of Architecture and Fine Arts; Institute of Nursing; Institute of Engineering; Institute of Tourism and Hotel Management; Institute of Law; and Institute of Graduate Studies. In November 2009, FEU entered into a Joint Venture (JV) Agreement to establish a joint venture company (JVC) for culinary arts. The registration of the JVC was approved by the SEC on May 7, 2010. In 2010, the University established the FEU Makati Campus (the Branch) in Makati City. The Branch started its operations in June 2010. Far Eastern College-Silang, Inc. (FECSI) was incorporated on January 21, 2009 and has started commercial operations in June 2010. Segment Reporting Business Segments

A business segment is a group of asset and operations engaged in providing products or services that are subject to risks and returns and are different from those of other business segments. (a) Education - includes income from tuition fees and other school fees from offering specific courses. (b) Real Estate - includes leasing of properties and acquiring and developing real properties for sale or lease. (c) Investments - consist primarily of revenues and expenses arising from investing activities, except those pertaining to subsidiaries, associate and joint venture, of the Group. Segment assets include all operating assets used by a segment and consist principally of operating cash and cash equivalents, receivables, AFS investments, HTM investments, real estate held-for-sale, investment property and property and equipment. Segment liabilities include all operating liabilities as presented in the consolidated statements of financial position, except for deferred tax liabilities. Segment assets do not include investments in an associate and a joint venture, deferred taxes and other assets which are not allocated to any segments assets.

Segment revenues, expenses and performance include revenues and purchases between business segments and between geographical segments. Such services and purchases are eliminated in consolidation. December 31, 2012, 2011 and 2010 (Amounts in Thousands of Philippine Pesos)

Geographical Segments

The Groups geographical segment for the years ended March 31, 2012 and 2011 follows (in thousands). The Makati branch (the Branch) and Far Eastern College Silang, Inc. (FECSI) only started commercial operations in 2011, hence, there is no such presentation in 2010.

Opinion about the Profitability and Revenue Growth of FEUs Operating and Geographical Segments Being an educational institution, it is normal to know that FEUs most profitable operating segment is education. There is nothing to question and surprising about it. Though the changes in net income for three years have been unstable, neither there has any substantial change in proportion to revenue and expenses. Decrease in net income happened in 2011 but such was taken back in double in 2012. The same is true with what happened to Rental Income segments revenue, expense and net income. Identifying Rental Income segment (under Real Estate) is not unexpected at all since in this kind of industry colleges and universities are expected to having buildings and other facilities that may be rented out to others, whether internal or external. Since educational institutions arent customarily engaged with selling properties, considering the nature of Sale of Properties segment (under Real Estate), it is understood why significant changes happened with its net income. Such change in income is dependent upon the discretion of FEU when to sell its properties and if there are any willing and interested buyers. Since FEU is a listed corporation in the Philippines, having investments in other companies is not something to be called into question. Considering as well that FEU is a renowned university, thus populous, it can be expected to implement expansion plans which for sure will take long period of time. Funds in connection with such plans can be derived from capitalizing in long-term investments. Revenue growth and profitability of such investments appear to considerably improve FEUs financial performance. Just like the case of almost every corporation, incurring losses during first years of operations is not extraordinary. Far Eastern College-Silang, Inc. (FECSI) has started operations only in 2010 and generated profit in the following year. However, it was surprising that in 2012 it incurred a loss which is undoubtedly attributable to the ample increase in operating expenses during the said year. Perhaps such increase could be traced to advertising expenses in order to promote the newly established college. The only inconsistency is that the Makati branch was able to maintain the profit it initially realized given that it started operations at the same period as well. This time it can be said that geography principally influences the income, complementing the idea of FECSIs further need of promoting itself. Comparing Cavite and Makati, it can be understood easily why the branch in the latter need not any promotion in order to persuade customers. With anticipation, the main office or the Manila branch has shown to have the highest income realized for two years. Proportion in revenue growth and profitability does not indicate any reservation.